If you have ever been involved in negotiating a consultant agreement in the construction industry, you are likely familiar with the tedious process of trying to strike out clauses from a standard construction contract that don’t apply or aren’t relevant to your services as a consultant.
Unfortunately, consultants often get stuck with generic construction contracts and don’t get the individual and specialised treatment they should.
The good news is that there are some key provisions that if you can make sure you get right as a consultant (in addition to being clear on your scope), you will set yourself up with a strong contractual foundation from the get-go.
Consultant contracts are often highly negotiated due to the significant liability they can carry, especially relative to the contract value. For professionals like architects, engineers, and specialist consultants, carefully reviewing specific clauses during negotiations can help protect against unnecessary risk.
In this article we explore four critical contract clauses that every consultant should focus on.
Standards of Care and Warranties
Every consultant contract should clearly define the expected performance standard.
Typically, this is expressed along the lines of delivering services with “due care, skill and diligence”, consistent with what a skilled and competent professional in the same field would provide. Even if that standard is not explicitly stated in the contract, it is often implied under common law. That said, relying on implied standards can lead to ambiguity and disputes so is best avoided.
Consultants are also held to a professional standard of care in negligence.
Consultants should be aware of clauses that impose elevated standards, like requiring services to meet the “highest industry standard”. These can raise your liability exposure significantly.
Warranties often accompany these standards.
A good general rule to remember is that consultants should, where possible, seek to limit their warranties to the performance of the services, rather than promising certain outcomes – delivering outcomes should be a contractor’s responsibility.
Nonetheless, a common industry warranty requires that the services be fit for purpose.
While it sounds simple, this phrase can be legally risky.
A broad interpretation might make you liable for any failure to meet even an unstated or implied objective. Consultants can manage this risk by pushing for more specified and narrow wording, such as fitness for a specific stated purpose, rather than implied or inferable purposes.. This may assist to limit your liability to being connected with the purposes you’ve specifically agreed to achieve.
Also be aware that some legislation may impose minimum standards. For instance, under Australian Consumer Law, certain goods and services have implied guarantees including that the products or services will be delivered with reasonable care and be fit for purpose.
If they apply, you generally can’t contract out of these guarantees, but you can manage their impact. Some contracts include clauses limiting remedies to repeating the service or covering the cost to do so. This is one way to contain liability within manageable bounds.
Indemnities
While you shouldn’t focus on them to the exclusion of everything else, indemnity clauses are among the most potentially dangerous parts of consultant contracts.
They require one party (usually the consultant in a client’s contract) to compensate the other for specified losses of the first party. The problem? These clauses can expand your liability beyond what you’d normally face under the law, and often beyond what your insurance may cover.
You should be aware that if you agree to indemnify a party, you agree to compensate that party for any costs arising from the circumstances described in the clause, without needing to meet the usual legal elements of damages (including that the loss must not be too remote and must be reasonably foreseeable).
For example, without an indemnity, a consultant may be liable for losses caused by their negligence or breach of contract.
However, with a broadly worded indemnity, you might be liable for losses even if you weren’t at fault or even if the loss was partly caused by someone else.
Be cautious of indemnity clauses that:
- Apply regardless of fault
- Cover any claims or allegations (even unproven ones)
- Don’t allow for proportionate liability – where your liability is reduced proportionally to the extent of contribution by others
- Cover broad categories like third-party claims, tenant losses, or project delays
Where a client will not accept complete removal of indemnity provisions (basically always), the next best avenue may be to negotiate for a fault-based indemnity.
For instance, limit it to losses caused by your negligence or breach of a professional duty. Also ensure that the indemnity is reduced proportionally if the client or others contributed to the loss.
Another key consideration for indemnities is insurance. Many professional indemnity policies exclude strict contractual liability which is assumed exclusively under contract. So if your contract includes extensive indemnities for various events or claims regardless of consultant fault, you may find this liability is uninsured and if there was a claim under the indemnity, your insurer might refuse to pay. This is part of why indemnities should be a key factor when considering not just legal, but commercial, risks in a contract.
Limits and Exclusions on Liability
While limits of liability and exclusions of consequential loss are common in many kinds of construction contract, they are especially important risk-management tools in consultant agreements.
Consultants typically provide professional services rather than control the physical works, yet they can be exposed to disproportionately large claims if design issues, documentation errors, or coordination gaps contribute to critical defects or overall project losses. Without carefully calibrated protections, relatively modest fee engagements can attract claims far exceeding the consultant’s remuneration and insurance coverage.
Liability for consequential or indirect loss such as claims for delay damages, loss of revenue, financing costs, and other remote losses can escalate quickly and be debilitating for a small consultancy firm. These heads of loss might be asserted even where the consultant’s role was limited. A well-drafted exclusion of consequential loss and limitation of liability helps align the consultant’s financial exposure with the commercial reality of the engagement, and hopefully also the level of professional indemnity (PI) insurance maintained.
Some key negotiation tips include:
- Make the cap specific to the job: the amount of the liability cap should reflect the commercial position and risk on the particular job. Often parties do this by making the cap relative to the fees for the engagement.
- Scrutinise carve-outs: clients often seek to exclude certain categories of claims from the cap, meaning the consultant will have uncapped liability for those kinds of losses. While some of these are standard and arguably reasonable, you should try to ensure any carve-outs are narrow and insurable.
- Define consequential loss carefully: Use a clear, inclusive definition that captures common construction claims such as delay costs, loss of profit, loss of financing opportunity and other indirect or special losses.
Proactive negotiation of these provisions is one of the most effective ways consultants can preserve a balanced and insurable risk profile.
Intellectual Property Rights
Intellectual property (IP) is another major area of concern in consultant engagements.
Your designs, models, reports, and specifications are often the core of your services, and their ownership and permitted uses should be addressed in your contract.
By default, consultants generally own the IP they create. But clients need rights to use those deliverables, at least for the project. There are two main options:
- Consultant ownership with client licence: in this arrangement, you keep the IP and grant the client a limited licence to use those deliverables without breaching your IP. This is often the best arrangement for consultants, especially those with reusable design systems or proprietary tools. To protect your IP rights, you should ensure the licence is project-specific and doesn’t permit wider reuse.
- Client ownership: the more common scenario we see, especially in larger projects, is that clients may require ownership of all IP developed in the course of the project (by other consultants and subcontractors alike). This will give the client greater freedom and flexibility to use the designs and documents for future projects. If you agree to client ownership in IP, try to negotiate to retain your “background IP”, which should be anything the consultant created before the contract or that is otherwise part of the consultant’s normal business operations, such as its methods of work or know-how.
Standard construction or consultant contracts will also include mutual warranties regarding intellectual property rights. Both parties warrant that the documents and information they provide under the contract will not infringe third-party IP rights.
Conclusion
While consultant contracts can be complex, ensuring your negotiation efforts address at least these four key clauses can protect your interests and reduce long-term risk.
Spending the time to negotiate these clauses upfront will reduce future risk – a well-drafted contract sets the tone for a successful project and helps avoid costly disputes down the line.
Need guidance reviewing or negotiating your next consultant contract? Reach out today to ensure you understand your risks and can maximise your protections before you sign.
